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Health Reform Strengthens Medicare

As the Wall Street Journal reported recently, some seniors who receive Medicare coverage through private “Medicare Advantage” insurance companies rather than traditional Medicare are concerned about the health reform law’s impact on their benefits.  They shouldn’t be worried: health reform will strengthen Medicare while protecting all beneficiaries.

Contrary to critics’ claims, the new law won’t cut the benefits that Medicare Advantage plans are required to cover.  The plans will still have to provide overall coverage that’s at least as good as traditional Medicare.  And they’ll no longer be able to charge more than traditional Medicare for certain critical services, like chemotherapy.

Instead, health reform will take strong steps to eliminate waste in Medicare Advantage.  While private insurers were supposedly brought into Medicare to reduce costs, they receive 9 to 13 percent more per enrollee than traditional fee-for-service Medicare.  These overpayments cost taxpayers $44 billion between 2004 and 2009.

A large share of the overpayments goes to padding insurers’ profits rather than providing additional benefits to enrollees.  Among one type of Medicare Advantage plan — private fee-for-service plans — less than a fourth of overpayments go toward additional benefits on average, according to the Medicare Payment Advisory Commission, Congress' expert advisory body on Medicare payment policy.

In fact, these plans are so overpaid that there’s no pressure on them to be more efficient and find better ways of providing care. The health reform law will phase down these overpayments starting in 2012 and use some of the savings to provide bonus payments to plans that provide higher-quality care.

Reducing the overpayments will also help enrollees by making Medicare’s long-term finances more stable.  Along with other Medicare changes in the new law, it will extend the life of the Medicare Hospital Insurance Trust Fund by 12 years and keep beneficiary premiums lower.

Medicare Advantage plans need to start competing based on quality and efficiency, and that’s exactly what the health reform law encourages them to do.